If the opinion polls are right, Jeremy Hunt is on the political equivalent of death row. Voters have passed judgment on the government and it is only a matter of time before the sentence is carried out.
That’s not the way the chancellor sees it. For a condemned man, he was remarkably cheerful as he did the rounds of the TV studios in the run-up to Wednesday’s autumn statement. His message was simple: things may look bleak for the government but all is not lost. There is too much negativity. The long-term prospects are “fantastic”. The chancellor is confident there will be an 11th-hour pardon from the British people.
Hunt says the tough decisions on tax and spending taken a year ago are bearing fruit and that the public can be brought round gradually to the idea of a reprieve.
Miracles do happen. Hunt may be able to pull off his own version of the Hollywood courtroom drama 12 Angry Men, with himself as Henry Fonda, but the chances of a not guilty verdict for the government whenever the election comes are vanishingly small.
This is not the movies. There is no way back for the Tories without a marked improvement in the economy, and progress on that score is going to be slow at best. The autumn statement is unlikely to change voter perceptions.
In part, that is because the package will be modest, even though the chancellor appears to have more money to play with than expected a few weeks ago. The preannounced £4.5bn investment in strategically important manufacturing, for example, is spread over five years and in no way matches the ambition of Joe Biden’s Inflation Reduction Act. That act provides genuine incentives for green businesses to invest in the US; Hunt’s money will barely touch the sides on its way down.
That’s not all, though. The measures the chancellor is apparently contemplating – such as reducing inheritance tax and not fully uprating welfare benefits – would be poorly targeted and politically tin-eared. Hunt played down weekend speculation that he would announce cuts to income tax or national insurance on Wednesday.
Ultimately, whatever Hunt does will be too little too late. The removal of Liz Truss was supposed to mark the nadir of the Conservative party’s fortunes but even with the “grownups” back in charge, poll ratings have not improved. The latest poll by Ipsos shows almost eight out of 10 voters – including 70% of Tory supporters – think public services have got worse over the past five years.
In Hunt’s best-case scenario, the economy avoids going into a recession this winter and starts to recover gently in early 2024. Consumers feel better off because earnings are rising faster than prices. Inflation continues to fall, prompting the Bank of England to cut interest rates next spring. Cheaper borrowing reignites the housing market. The improvement in the public finances provides the scope for a giveaway budget. Voters feel less negative about the government and – at the last minute – produce a stay of execution.
This, though, is based on two questionable assumptions: that the economy avoids recession this winter and that the public is prepared to forgive the government for the squeeze on living standards caused by a two-year cost of living crisis.
The chances of avoiding a recession would be markedly improved were the Bank of England to start cutting interest rates. In previous economic cycles, growth this weak would have already led to lower borrowing costs but rates will be stuck at 5.25% until well into next year. The Bank’s concern about the risk of a wage-price spiral means there is no real chance of borrowing costs coming down any sooner, and that means there is no real prospect of the economy generating a head of steam until after the election.
Given that interest rates have been going up and taxes have been raised, it is surprising the economy has held up as well as it has in 2023. A small increase in unemployment and stagnant growth represents a soft landing. In all the circumstances, things could have been a lot worse.
Hunt and Rishi Sunak have received zero credit for the economy outperforming expectations, which is what tends to happen to governments when they have the misfortune to preside over an economic crisis after such a long period in office. After 13 years, the signs are that voters think it is time for a change, just as they did at the 2010 election. By then, the economy had started to recover from the deep recession caused by the global financial crisis but Labour still lost.
Hunt will find the money to announce some tax cuts on Wednesday and will no doubt be even more generous in next spring’s budget. He will only be able to do so by ignoring the fragile state of the public finances, which are in a much worse state than he is prepared to admit. Interest rates are not going to return to rock-bottom levels and this means the government will have to run a tighter ship if it is to meet its own rules for the public finances.
As far as Hunt is concerned, though, that’s a problem that can be put off until the other side of the election. He can come up with tax cuts and implausibly tough plans for public spending, knowing that someone else will have to deal with the consequences.
That someone will almost certainly be Rachel Reeves. The shadow chancellor needs to learn a key lesson from Labour’s defeat in 2010: the importance of seizing control of the political narrative and blaming the outgoing government for any tough decisions she needs to take. Because, make no mistake, there will be some.